چکیده انگلیسی

We model a market with environmentally conscious consumers and a duopoly in which firms consider the adoption of a clean technology. We show that as pollution increases, consumers shift more resources to the environmental activities, thereby affecting negatively the demand faced by the duopoly. This effect generates incentives for firms to adopt the clean technology even in the absence of emissions taxes. When such taxes are considered, our results indicate that the benefit of adopting the clean technology is initially increasing and then decreasing in the emission tax. The range of values for which the emission tax increases this benefit becomes narrower when the consumers’ environmental awareness is stronger.

مقدمه انگلیسی

Recent years have witnessed an increased awareness for issues pertaining to the impact of economic activity on environmental degradation. As a result, both policy makers and the wider public have intensified their efforts and actions towards pollution reduction. On the one hand, policy makers have attempted to encourage firms’ investments in environmental R&D using a variety of instruments such as taxes on emissions, caps or R&D subsidies. On the other hand, environmentally conscious consumers have not only shifted their preferences towards goods with environmentally friendly attributes (e.g., recyclable packaging, organic produce, certification of environmentally friendly production techniques, etc.) but they have also increased the resources they devote to general activities that mitigate the extent of environmental degradation.
There are many ways through which consumers can contribute resources to improve the environment. One example is the participation in carbon offsetting schemes. These schemes are supported by firms in a variety of industries, from aviation (British Airways, for example) to energy generation (Eon). Through these schemes, individuals contribute financially to the purchase of carbon credits to compensate for their own emissions. Another example is individuals’ donations to certain NGOs who purchase permits from emissions trading systems on their behalf, thereby reducing the amount of available permits and therefore effective emissions. Examples of such NGOs are the Acid Retirement Fund and the Clean Air Conservancy Trust in the US or Sandbag in the UK. Individuals can also take part in environmental volunteering, which often involves not only the supply of unpaid work (with its associated opportunity cost) but an additional financial contribution.1 Extreme examples of green consumerism can also be found in boycotts to firms perceived to damage the environment with their actions. Boycotts also require time and effort for their organisation, as well as monetary resources (e.g., campaigns on the media, etc.).
It seems safe to think that firms may invest in cleaner technologies as a result of their understanding that a failure to react to consumers concerns and actions, could have adverse consequences for the demand of their products. According to Coddington (1993), some firms take into account “consumer concerns about promoting preservation and conservation of the natural environment” (Coddington, 1993; p. 3) through ‘green marketing’ practices. Polonsky (1994) argues that ‘green marketing’ incorporates a broad range of practices that includes, among others, changes to the processes of product creation, in order to reduce pollutant emissions and thus render them less harmful to environmental quality. It is argued that one of the reasons why firms participate in voluntary environmental programmes such as the Toxic Release Inventory and the Toxic Use Reduction Act (TRI and TURA henceforth)2 is public perception (Taiyab, 2006 and Corbera et al., 2009) and the potential impact of firms’ actions on the demand for their products (Sabel et al., 1999). Some consumer boycotts are also considered to have been successful in inducing firms to improve their environmental credentials (for example, the Shell Brent Spar boycott).3
All the aforementioned examples and anecdotal evidence shows that firms seem to be more willing to adopt environmentally-friendly production methods, in response to various manifestations of consumers’ environmental awareness. This may be because the resources that consumers devote to pro-environmental activities are diverted away from the resources available of the consumption of firms’ products. Or because demand is shifted away as a result of the perception and concern that environmentally conscious consumers have about the polluting production methods of an industry. In any case, the preceding discussion shows that the analysis of environmental technology choice, in a scenario where firms take into account the adverse effect generated by consumers’ reactions to their polluting production methods is a venture worth pursuing. This is indeed the focus of our paper. Moreover, we argue that such an analysis may have policy relevance: this is because the relative strength of consumers’ environmental consciousness, and its corresponding implications for demand, may impinge on the effectiveness of policy instruments, such as emission taxes, designed to induce the implementation of less polluting production methods.
So far, the literature on green consumerism has contemplated the existence of heterogeneous consumers, where their preferences for the environment motivate competing firms to endogenously differentiate their goods in terms of their environmental attributes. In these models, some firms specialise in the production of a greener variety of the good. This arises in the contexts of horizontal differentiation (Conrad, 2005); vertical differentiation (Bansal and Gangopadhyay, 2003 and André et al., 2009); and where two dimensions of differentiation are considered (Deltas et al., 2008). However, such frameworks fail to capture the essential features of other empirically relevant arrangements such as the ones we alluded to earlier (carbon-offsetting programmes; donations to charities; volunteering; boycotts, etc.).
In this paper, our aim is to fill the current void in the literature. Particularly, we move away from consumer heterogeneity and its implications for product design to focus on issues that relate to production methods. We begin our analysis with the description of a market where consumers have preferences over the consumption of a homogeneous good and environmental quality.4 These consumers find optimal to devote part of their resources towards environmental improvements. We show that, in response to an increase in pollution, consumers shift their resources away from the consumption of goods and towards activities that mitigate the extent of environmental degradation. Subsequently, we analyse a Cournot duopoly in which this negative demand effect affects both firms’ decisions concerning output levels and the cleanliness of the technologies they employ. The latter is characterised by the pollutants emitted per unit of production and its choice may entail positive technological spillovers across firms.5
In this context, we derive and discuss the implications of the negative demand effect of pollution for firms’ optimal choices. Furthermore, we show how the relative strength of this effect may impinge on the effectiveness of emission taxes as policy tools designed to motivate the adoption of cleaner production techniques by firms.6
The remaining of the paper is structured as follows. In Section 2, we analyse a market in which environmentally conscious consumers devote resources towards environmental improvements and we derive the implications of higher pollution for consumer demand. In Section 3, we use these implications in a Cournot duopoly model with endogenous technology choice and derive the equilibria both in the absence and in the presence of emission taxes. Section 4 shows how the negative demand effect from pollution affects the scope of emission taxes as incentive mechanisms for the adoption of cleaner production methods. Section 5 provides some further discussion on some of the model's basic assumptions and Section 6 concludes.

نتیجه گیری انگلیسی

We have analysed how the existence of environmentally conscious consumers affects firms’ adoption of cleaner manufacturing technologies. Although, in recent years the literature has introduced the presence of environmentally conscious consumers in models of product differentiation, such models are not suitable for the analysis of situations where consumers are involved in environmental activities such as participation in carbon offsetting schemes, environmental volunteering, donations, boycotts, etc.
In this paper we propose a framework of analysis for this alternative type of environmental conscious consumers. In particular, we have assumed that consumers’ utility is a function of both their level of consumption of a good and environmental quality. Environmental quality is affected both by the amount of resources which consumers devote to environmental activity and by total emissions. As for the technology choice, we have assumed that firms have two technologies at their disposal which differ in their associated emissions per unit of output ratio and fixed costs.
We have shown that following an increase in pollution, consumers will channel resources away from consumption and towards environmental activities, thereby reducing the demand for the good which firms face and the subsequent levels of output produced by firms in equilibrium. This reduction in demand due to consumers’ environmental activities generates incentives for firms to adopt the clean technology even in the absence of emissions taxes or technology spillovers.
Our results also indicate that increasing the tax rate on emissions does not necessarily lead to the adoption of clean technologies. In fact, the benefit of adopting the clean technology follows an inverted U-shape in the tax rate, which implies that after a threshold value of the emission tax rate, further tax increases make less likely the adoption of the clean technology in equilibrium. This counterintuitive effect is more prevalent in situations where consumers are environmentally conscious.
All in all, the main policy lesson that can be extracted from our model is that any environmental policy aimed at improving the technological profile of firms should take into account the behaviour of environmentally conscious consumers where relevant (for example, in markets where environmental activities such as the ones described above take place); otherwise, the policy may have undesirable effects on firms’ decisions to invest in cleaner technologies. A word of caution is needed here: our results have been derived in a streamlined model. The introduction of different market structures or more general demand or cost conditions would constitute a potentially interesting direction for future research.